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28 August 2018

When and Why to File an Amended Tax Return

Determining when and why to file an amended tax return is an individual decision based on several key factors (usually a change in filing status, income, deductions or credits). You may be surprised to learn filing an amendment sooner isn’t necessarily better, though, even according to the IRS.

When it comes to simple math errors or omitted forms, you likely don’t need to file an amended return at all. The IRS states it will fix those errors for you and request any additional information it needs. Amended tax returns are for more substantial issues, like claiming additional tax credits or refunds. In those cases, file the amended tax return within three years after the date you filed your original return (or extended return) or within two years after the date you paid the tax, whichever is later. But why wait to do it?

If you filed a return or an extended return before the due date and then discovered a problem, you can refile it immediately (essentially superseding the original return) but doing so could cause major headaches for both you and the IRS. In fact, the IRS begs you not to “file more than one original return for the same year, even if you haven’t received your refund or haven’t heard from the IRS since you filed. Filing more than one original return for the same year or sending in more than one copy of the same return (unless we ask you to do so) could delay your refund.”

Instead, the IRS prefers you wait until it processes the first return. If you’re expecting a refund, it’s advised that you don’t file an amended return until after you receive and deposit the first refund. If you need to pay additional tax, the IRS states you should file the amendment and pay as soon as the first return is processed to limit interest and penalty charges.

But this is where the water gets murky.

Forbes Contributor Robert Wood says that filing an immediate amendment could be a mistake. That’s because the IRS only has three years to audit a tax return—the same amount of time you’re given to file an amendment.

“You might assume that filing an amended tax return would restart the three-year statute of limitations. Surprisingly, it doesn’t,” Woods points out. “In fact, if your amended return shows an increase in tax, and you submit the amended return within 60 days before the three-year statute runs, the IRS has only 60 days after it receives the amended return to make an assessment. This narrow window can present planning opportunities.”

This tactic can bring penalties and fees for those owing money, however. And for those amending for a large refund, you can expect the IRS to take immediate notice. Feel free to contact us with questions about your individual situation.

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